Obscene Art

We went grocery shopping last night. When we got in the car, there was the usual brief discussion of which grocery to go to. There are five groceries in short driving distance of the house, but only three of them get regular business from us: the Milk Pail Market, Whole Foods Market, and Albertsons. Last night we went to Albertsons for the staples of milk, loaf bread, a few frozen foods, peanut butter, etc. and then drove back across town for the Milk Pail. This got me thinking about customer loyalty, and what takes us to one side of Mountain View for Albertsons, despite there being a Safeway a block away from the Milk Pail.

The Milk Pail is pretty much a regular weekly visit for us. The fresh cheeses, breads, and crazy cheap and fantastically fresh produce is a killer feature. Even the cramped and crowded quarters can’t deter me from this place. So, the Milk Pail earns our loyalty through great prices, fast service, and really high quality. They don’t carry even half of the items that we buy each week, so it is definitely not convenience that takes us to the Milk Pail, but we go every week.

Albertsons and Safeway are roughly identical in almost every way. They carry roughly the same mass-market goods. Produce is pricey and of marginal quality. Both have a wider selection and better prices than the Whole Foods. Both have a “customer loyalty” program that involves annoying applications and little plastic cards that one has to carry around. But, and this is the distinction that brings us back to Albertsons and causes us to shun Safeway, Albertsons doesn’t make you have a “loyalty” card in order to get the “loyal customer” prices. If you don’t have a card, the cashier will swipe their own. These customer loyalty cards must be good for somebody somewhere, but I never apply for them, and every time I happen to stop off at the Safeway, and I see a special price for cardholders I feel a small measure of hostility towards the entirety of the Safeway organization. Since I don’t enjoy feeling hostile, I don’t shop there unless it’s on my way somewhere and I must have something in a hurry. Instead I’ll drive an extra couple of miles and go to Albertsons.

Seth Godin, in his book Permission Marketing seems to come down on the side of these kinds of programs, though he seems to think they aren’t being used effectively. And it’s hard for me to argue with a well-known expert on marketing, but I know how I feel about it, and I can say with absolute confidence that there is almost no “value” that a grocery store could offer that would make me want to fill out their applications and fill up my wallet with their stupid little plastic cards. I believe they’re a bad idea on multiple levels.

It’s Inefficient

Since I generally pay for groceries with a credit or debit card, they already know what I’m buying and can track my usage patterns as deeply as they like. So, it’s inefficient to have a whole other data gathering mechanism…they already have almost all of the data, and they shouldn’t inconvenience their customer to gather it a second time. Of course, they’re also gathering my home address in this process, but that’s for their benefit, not mine. Sure, they could send me coupons for the things I buy, as Seth suggests, or for things related to those I buy. But they can already do that, and many groceries do, at the register as I’m checking out. It’s also an inefficient use of the cashiers time and mine in the checkout line. Sure, it’s only thirty seconds, but it’s thirty seconds of at least two peoples time that didn’t have to be wasted. One of those people is me, and I hate it when people waste my time.

It’s hostile to new customers

When we first moved to Mountain View, our first grocery expedition was to Safeway. We were harried from the move, but needed a few things to help us get settled in, and we’d seen the Safeway when coming in. We picked up about $50 worth of items, and checked out. We were exhausted, and definitely did not feel like filling out an application for a Safeway card. For the privilege of shopping at Safeway without a Safeway card, we paid over $12 more for those groceries! Five months later, I still hold a grudge about that measly 12 bucks. Safeway thus earned our disloyalty through being actively discouraging to new customers–those who might not know yet if they want to be a Safeway customer enough to fill out an application. In our case, they insured that we would never be loyal Safeway customers. Perhaps in other circumstances, the grudge would not have developed, but I doubt in any circumstance would it encourage me to shop at Safeway.

Another way

There’s another way to encourage loyalty in your customers. I’ve hinted at it above, in reference to the Milk Pail, but I believe even in the case of groceries that are going toe to toe with Safeway, there are better ways to turn an occasional customer into a regular customer. Which brings me to HEB. HEB is a Texas-based chain of groceries, probably the largest independent chain in the US. HEB doesn’t have a loyalty card program. In its place it has practices that engender real loyalty. Genuine loyalty for a grocery store is a strange phenomenon to witness, but I’ve seen it (and felt it) for HEB. When the Wufoos were here in town for Under the Radar or some other Web 2.0 gathering Kevin and I talked about grocery stores (now you know what Y Combinator company founders talk about when they get together). In the course of our conversation it was revealed that both our moms have a strong preference for HEB. My mom, having recently moved from Texas to Atlanta, frequently laments the loss of HEB in her life. I thought it was silly until I moved out of Texas and found myself in a world without HEB. I now know what it is to miss a grocery store.

So what makes HEB so damned fancy? While the quality of their produce and selection of both mass-market and organic foods is good, they aren’t a premium grocery like Whole Foods. They don’t have fresh cheeses and breads from local bakers like the Milk Pail. And they don’t have any kind of “loyalty” program at all, like Safeway.

But, they’ve got good prices on everything in the store. Literally everything in the store is competitively priced…even the mighty price-cutting Wal-Mart Supercenters can’t topple an HEB, despite concerted efforts to do so in Texas. I feel like I’m always getting a fair price at HEB.

HEB is fast. When there’s a line of more than one or two people at an HEB, they open another register. Always. Even at 7 PM, when every register was active and the aisles were packed with people, I’ve never had to wait more than five minutes to check out at an HEB. It’s an amazing thing to see. They respect my time, and that’s a powerful thing.

HEB is generous. They offer to carry your groceries out for you, if you have more than a couple of items. Really. Have you had anyone offer to carry out your groceries in the past two decades at any other store? HEB does it every time, and they offer it even if you’re not older or in a wheelchair or otherwise seem like you might need help. Of course, the vast majority of people don’t take them up on the offer, so it costs them almost nothing to offer. But, when my mom had an extra large load, or wasn’t feeling well, or whatever, she knew she would be best served by HEB, because no other grocery would offer to help her out to the car. Of course, any grocery will probably find someone to help you with your groceries if you ask them to, or if you’re obviously not able to do so on your own. But, my mom, like most moms, wouldn’t want to trouble the busy folks at the grocery if there wasn’t the assurance that it was part of their job and they expected to help you out to your car if you needed it. And, of course, no one likes to be identified as uniquely incapable of doing something for themselves…at HEB, it’s not special treatment, it’s part of the package, and when you need it you simply say, “Yes”, to one question. In short, I believe this one standard practice at HEB is better for loyalty than a million coupons or plastic cards. I appreciate it, and I’ve never needed help. Who knows when I might.

Finally, HEB is friendly and personal. I don’t know what their hiring practices are that leads to such high caliber people, but I’ve never been dissatisfied with an interaction with an employee at HEB. They’re universally friendly and helpful. It may simply be that they keep enough people on the floor to keep things running smoothly which helps employees not feel stressed or overworked, or it may be that the people are better trained (which may explain how HEB seems to magically open a new register when more are needed, without any intercom noise begging someone to come to the front), or it may be that they pay their employees more than most groceries, or have better in-store management, or some combination of those things. HEB is also the only grocery that hasn’t drunk the Kool-aid on self-checkout (though I believe some of the HEB stores offer it, they don’t do so at the expense of not having enough human cashiers, unlike Wal-Mart). Whatever it is, shopping at HEB is pleasant.

Of course, they do all of the other stuff right, too. Aisles are wide and comfortable. The stores are clean and well-lit. The shelves are generally well-stocked and neat. Etc. But many groceries meet those qualifications, including Safeway and Wal-Mart…and I’ve never heard anyone exclaim their dedication to a Safeway or Wal-Mart, and I can name off half a dozen people who deeply appreciate HEB.

Applying the HEB model to other industries

Now, I’m not in the grocery business. In fact, my business doesn’t have a physical presence, at all. But when a business as boring as groceries can instill the kind of loyalty that HEB customers have, it’s worth paying attention to.

So, what are the important elements? Good value, don’t make your customer wait, no artificial barriers to becoming loyal (e.g. don’t make someone fill out an application and sign a loyalty oath before you treat them like a good customer…give them the benefit of the doubt), always offer to go above the call of duty (especially when you know most customers won’t take you up on it).

We’re already doing a lot of these things with our product and website, but I think we can do better.

A “fair price” for any non-commodity item is whatever price customers will pay and feel like they’ve come out ahead. This means “ahead of where I’d be without any product of this kind” as well as “ahead of where I’d be if I’d chosen a similar competing product”. So, in our case, we have to provide better value or a better product than cPanel and Plesk, or do both. We’re solid on both counts, though I believe we can do better at explaining to people why we’re building a better product.

Not making your customer wait has a lot of implications in the software business. The software can’t be slow. The website where ordering and support take place can’t be slow. Delivery of purchased digital goods should be immediate. Support query response time should be fast. These are hard problems, and almost every business could do better. In our case, we have some sluggish components in our product (not many left, but still a few remain), our website is pretty sluggish (to be mostly fixed by our upcoming migration to a new CMS), we already make purchased products (except human services) available immediately, and finally, support queries are sometimes handled within a few hours and usually not more than 24. We’d like to improve on that last number, but I’m not sure it’s possible with only two people. I think the new website will help us on that count, as well…a wiki for documentation will allow us to better translate support interactions into better coverage in the documentation, and a better issue tracker will help us involve some of our more educated users in the support process (in exchange for fabulous prizes, like T-shirts and free software and such).

Avoiding artificial barriers to becoming a customer is a hard problem, not made easier by most of the pre-written software out there to handle selling and communicating with customers online. Our current website is running on OpenACS, and it’s actually pretty good about staying out of the way, but it still has some stupidity that is inexcusable. One of the major projects in our Joomla migration has been to make it less demanding of the end user. By default, it’s got a lot of features that really get in the way of simply using the applications, and it’s been a long hard slog to get rid of most of those nuisances. User registration should ask for only two things: Email address and a password. A username my be a valid extra third field, if it’ll be displayed publicly in forums or wikis or whatever. In our case we’ve opted to have usernames. But we don’t ask for anything else to sign up. If the user wants to give us more data, or give us billing information in order to buy the product, we get to that later. Posting to the forums, using the bug tracker, wiki, etc. can all be done without giving up more than those bits of data.

Being friendly and personal. Well, that’s just how you interact with people. I’d suggest not hiding behind generic email aliases in order to seem bigger. We send out support emails with our name attached from our personal mailbox. When we talk about things in the bug tracker and forums, we use first names, and treat it all like a friendly conversation…both for ourselves and our customers. Sure, people now know that we’re a two man shop, and there’s not a suit in sight. So, what? If we’re kicking cPanel and Plesk’s ass with two guys imagine what we’ll do when there’s five of us this time next year? I think being genuine is a net win.

Going above the call of duty is the hardest to define. What is expected, and what is cost-effective to offer above that? A full refund policy is a given. If you don’t have a good refund policy, you’re losing sales and reducing customer loyalty. You’re also probably hurting employee morale. Nobody likes to have to tell a customer there’s nothing they can do, so don’t put anyone in that position. With software, support is the expensive thing, and so it’s hard to make a practice of offering it on top of the product itself at no extra cost. In our case, we’re doing it anyway. I’m not sure it is a sustainable practice, but during our open beta we’re viewing it as a development expense. The customer is our second tier of QC. When we find that the vast majority of support queries are, in fact, not problems with the software or the documentation and instead are a failure on the part of the customer to make a modest effort with the documentation first, that’s when we’ll start rethinking the policy. We’re getting closer to the point: we have a few problem customers that take far more than their fair share of support resources with questions that are well-served by the documentation and online help. The primary way we can tell is when they have questions that the other 99.8% (1 out of roughly 500 commercial users) of our users have managed to figure out on their own. If it’s a rarely used or new feature, we’ll instead assume it is poorly documented, has a bad UI, or simply isn’t working right. In all cases, as long as we’re calling the software beta, we’re giving unlimited support at no extra cost.

What else could we do to go above the call? We’ve got an Open Source version. Free stuff is a pretty good thing…but it doesn’t directly help our paying customers, except to build a wider pool of people who have expertise in our product (so if they need custom development, third party plugins, etc., the odds of finding it are better). We’ve got an open bug tracker so anyone can file a bug. That’s pretty valuable, though not a lot of non-technical users are familiar with the process. We’re launching a wiki for our documentation, so users can tell us what’s wrong with it and help fix it.

What are you doing to go above the call and engender real loyalty?

The California Gold Rush holds many parallels to our own current second Internet boom. More technology businesses are being started now than at any time in history, including during the first boom. Far fewer of them will go public, and far fewer of them will blow tens or hundreds of millions in VC (at least, I hope so). But, there are some similarities between this new boom and the previous boom and the Gold Rush of 1849.

A lot of people in all three instances struck it rich by tapping a rich vein…gold in the 1800’s, and huge user base and network effects in 2000 and today. But, and this is a big but, even more people barely broke even. If you don’t strike just the right balance of luck, hard work, and talent, you may end up holding an empty bag. Likewise, some walked a different path, and chose to serve those looking to find gold. Levi Strauss and Leland Stanford both began building their fortunes during the gold rush, but they did it not by searching for gold, but by selling tools, clothing, and supplies to the folks looking for gold. Yes, they had to work longer than the folks who actually found gold. But their odds of success were significantly higher. If you’re surrounded by people who need what you’re selling, and the alternative for your customers is to give up and go home or delay and miss out on a strike, it’s a safe bet you’re going to move a lot of product.

During the first boom, Sun and Oracle made more money than just about anyone by providing tools to the folks building businesses. They weren’t doing anything interesting on the Internet. They weren’t building websites that benefited from network effects, and it didn’t matter to them if millions of users chose their product or service every day. They only needed thousands of users…but they needed those thousands to pay a lot for their goods and services. Paul Graham talked about this in his An Alternative Theory of Unions, and it’s true that when time is of the essence, and staking a claim to your territory is a vital element of success, you’ll pay more to avoid delay.

Of course, Sun and Oracle weren’t the only businesses to make their fortunes providing tools for the first boom, and they aren’t going to be the ones making the money on this boom. The landscape is different, and the success stories are going to be in different areas. Hardware is cheaper and faster, entirely a commodity. Dell will make plenty on servers, but nothing like Sun’s astronomical profits. Databases, too, are a commodity. Every Web 2.0 service is using MySQL or PostgreSQL for their database needs.

We’re placing our bets on systems management. It’s boring, just like servers and databases. It’s necessary, just like servers and databases. And it’s not a commodity (except where we’ve made it a commodity with our own Open Source software). In fact, it’s surprising how weak server management is for web servers. We’re not the only folks placing our bets this way, of course, and it’s a rather big field. Analytics have been hot, because it’s easy to build technically and there’s been big upside for a few of the analytics providers (Urchin sold to Google, NetIQ bought WebPosition from FirstPlace, Instadia sold to Omniture, etc.), so it’s not surprising to see Mint, and dozens of others. Likewise for web service monitoring, with lots of new companies approaching the problem in new ways (we even have some plans in that direction, but only as an ancillary to our core product line). These are both products that tap into a desire that I believe is deeply ingrained into almost everyone, but managers tend to have almost no other desire: Measurement of success. I think of it as the “Ooh, look at the pretty graphs!” factor.

So, while our Open Source project Webmin is a wide-ranging general purpose web-based system administration tool (the most popular in the world with ~2 million downloads per year), our commercial products are tightly focused on web servers and the tools people building the next generation of web services need. So, we don’t get to enjoy the excitement of our first “million page view” day…we do get to live vicariously through our customers successes. It’s exciting to talk to Evan Williams about how he uses our software at Twitter. Nobody knows about it, since it’s on the back end. But it’s cool, nonetheless.

So, maybe if your consumer web business hasn’t taken off as well as you’d hoped, maybe you can refocus on making it a success as a tool for enabling others who are building businesses. Or, maybe not, and it’s time to get back to panning for gold. But it’s worth considering the alternatives to building a business whose only chance of success is convincing millions of people to use it every single day.

I’ve noticed an interesting trend among our customers…the developers start really small, but buy more over time. Sometimes a lot more. This makes sense, of course, since freelance developers move from project to project and each new project has a new budget and a new server. Our product makes managing a server and the websites on it really, really, incredibly easy and fast, so folks who’ve used it end up using it on every web server they deploy. We’ve had dozens of web developers buy our cheapest offering one month and the next buy two or three of the more expensive versions.

Developers are also more demanding than most customers. They recognize when difficulties they are having are failings of the software rather than failure of their knowledge of the subject matter (generally), and so they file more bugs and ask harder questions. So far, you’re probably with me that developers are awesome users.

They also have some flaws, as users. They want things that are only useful to other developers. And I’m not just talking about APIs here. APIs are awesome, of course, and we’ve got APIs all over the place, and you should, too. But sometimes there are opportunities for making a product more useful to developers just by the features that you include.

An example in our product is support for private IP addresses, dynamic DNS, and the ability to operate correctly behind a NAT firewall. This is actually quite a bit of code to support, and I was reluctant to add it. Our product already has too many features and too many options (flexibility can be a curse…but it’s also nice to always be able to answer “yes” to the question “does you product support X?”, so it’s a wash), so adding a bunch of stuff that’s only useful to web developers on their development servers in their home office seemed maybe a little crazy.

But, we did it anyway (OK, Jamie did it without really consulting with me on it, because his thought process on just about any new feature is, “yeah, I can do that” and then he does it that evening and launches it the next day). And, it turns out I was wrong. It’s worth the effort, the additional support expense, and the added options, because developers and IT are the key to customers for any technology product. If the nerd working on a project likes you and finds what you do valuable, they will recommend it at every opportunity within their company, or on every project they work on if they are contractors. If you save the IT department, or contractor, time and repetitive effort, you will have the whole company using your product in short order.

From here on out, when one of our developer customers has a request I’m going to think long and hard before dismissing it as too much of a niche feature. If I can visualize a large number of web developers across the world breathing a sigh of relief when we roll out such a feature, then we will roll it out. Our primary customer will always be web hosting providers, the bigger the better, and their usually non-technical end users. But, if we piss off the developers who actually build the websites, I’m certain we’d regret it.

So, what’s the punchline? What can you do about it? Well, if you’re building a web service that’s useful to a large segment of people, you may have built something that can save the IT departments in major companies time and repetitive effort. An obvious example of a fellow Y Combinator company is Wufoo. They make a really nice form builder service. Seems simple, until you realize how many forms could be used in day to day operations of most businesses…got a trip to plan and need to know who’s going? got a software audit coming up and need to know who’s using what products? got T shirts to distribute to customers and need to know where they are and what sizes to send out? Wufoo’s got it covered and you don’t need to bother your IT department about building another stupid form!

Online office productivity software is another obvious example. Saves IT departments tons of time and effort. Getting PowerPoint or Office or whatever for a system that doesn’t have it is a PITA in most companies. File a requisition, wait for an IT to get approval from your manager, wait for IT to license it and install it, find out that it needs more memory or disk space, requisition more memory and disk or new computer, etc. Three weeks later, the project has come and gone and now you’ve got PowerPoint or Office and don’t need it anymore. If you’ve got IT on your side, they will instead say to their user, “Try Zenter, it’ll let you do a nice presentation right away.” Or Google Apps. Or whatever…lots of possibilities there for making the life of IT guys better.

I went to Jessica Livingston’s talk at Google about Founders at Work a week or so ago. I’m a huge fan of the book, and expect to come back to it frequently. If you’re starting, or thinking of starting, a company there’s no better book to start with. It’s an interview format book of some of the most interesting tech company founders in recent history, including PayPal’s Max Levchin, Joe Kraus or Excite and JotSpot fame, and Woz (who need not be identified further). The talk rambles a bit to start with, but then she gets to the good bits with some great anecdotes from the book, some thoughts about things she’s learned running Y Combinator (and let’s face it, she does all of the real work in that organization, Paul’s just a pretty face, so she has a lot of interesting knowledge about early startups that very few people know). Overall a nice introduction to the book, and a few extra tidbits thrown in to make it worth watching even if you’ve read the book a couple of times.

Watch it at YouTube

Interestingly, it’s the most watched Google Authors video since the switch from Google Video to YouTube, outpacing even ridiculously popular Neil Gaiman, who has a cadre of nutty fanboys and fangirls who swoon over everything he does (I like him quite a bit, too, but when I heard he reads some of his poetry in the Authors talk, I decided to skip it…fine author, crappy poet..but then again, I don’t like most poets or most poetry).

While I enjoy seeing Mentos and Diet Coke symphonies as much as the next guy, I find myself spending a lot more time watching technical videos on Gootube and Yahoo! Video…Some of them are simply fantastic, so I thought I’d share a list of my favorites.

Guy Kawasaki’s Art of the Start presentation – Holy crap. You don’t get much better than this. Best 40 minutes you can spend if you’re starting a company or thinking of doing so.

YUI Theater – This one is awesome. Douglas Crockford has a three part workshop series that’s a soup to nuts JavaScript and DOM introduction. I learned JavaScript (by some definition of “learned”) in one weekend from this series of videos. There’s also a nice video in which Joe Hewitt introduces his FireBug, which is the greatest thing to happen to Firefox since…ummm…ever. Nothing else comes close to FireBug, and it’s been absolutely vital to my successes with JavaScript, so far. There’s a lot of other cool stuff in FireBug that this video doesn’t cover, but it’ll get you started.

Anatomy of a Debian Package – Unfortunately, I find Debian and Ubuntu documentation about packaging to be horribly opaque, due to lack of examples of the process of packaging. This video runs a little slow, but it’s at least a usable source of information. I really just want to see a “create this file, put this into it, now run some-command to build the software and bundle it into a package…and here’s the command you use to sign it”, similar to several existing examples for RPM. That part of the video starts at about 20 minutes in. I wish some of the docs would have pointed out dh_make and how to use it…would have saved me hours of frustration when I first started packaging debs. And, I also wish some of the too many options for building debs would be deprecated. There’s just too many, “or you could do it this way…or you could to it that way…or you could do it typing only with your toes”. Let me explain something to the Debian folks: I never want to build the damned thing manually. Get mentions of that stuff the hell out of the introductory packaging documentation. Same goes for signing packages and repositories. I don’t care how the hell you implemented package signing…show me what command to run and tell me where the resulting files (if any) go in my apt-get repositories. (Actually, this video doesn’t do much good with package signing, either.)

Competing on the Basis of Speed – This one isn’t particularly technical, but it’s interesting. I believe running really fast is absolutely key to success in the current tech industry. The key to this is stripping away things that are pointless or stupid about your business, product, or process. The trouble is figuring out what is pointless and/or stupid. Being a young and tiny company, it seems easier…but I suspect that even our two-man shop has some stupid and pointless pieces, which I hope we’ll shake out pretty quick once we have some infrastructure in place for measuring how our customers are really using the product.

Slashdot linked to an interesting article today entitled 20 Smart Companies to Start Now. It’s probably worth a read for the entrepreneur wondering what kind of business to start, but only as an example of how to think about and present ideas that you want to get funding for, and not as a formula for what kind of business you ought to be starting.

Why not start one of the businesses defined and get your millions and live happily ever after? Well, there’s the sardonic answer that I could use: Most of the ideas are just plain stupid. But I would never say that, because I don’t want to offend any potential investors. (Quiet in the back! I am not saying that most of the ideas are just plain stupid, I’m merely saying that one could say that.)

The longer and more useful answer is that most of the ideas are mountain-top ideas. In the sense that the VC has come down from the mount of money upon which they normally perch and granted us a glimpse of their dreamworld. There is no interaction with users to shape these ideas. The value in a startup, and the value that VCs can’t bring to the equation because they don’t usually bring huge numbers of real users, is that you get real feedback and you shape a product that has value, even if the initial idea was somewhat different. If you created one of the products defined by the VCs here as being shoo-ins for big funding, and immediately took it to the investor in question, I’m almost certain they would pass because you’re not bringing customers to the table (though they might claim it is because the idea doesn’t actually match their vision). And, with many of the ideas, you couldn’t bring customers, because there are none to be found for those products, or too few to justify the costs of running the business.
This is certainly painting with a too-broad brush, but my essay hero, Paul Graham, does it all the time, so I’ll do so now without feeling too much guilt and I’ll try to refrain from constant parenthetical concessions that there are arguably many different and valid opinions.

The Good Ideas

Before I tear into the bad ideas, I’ll pluck out a couple of good ones, and explain why you, assuming you’re a small fry entrepreneur like me, probably shouldn’t bother trying to enter them even though they are cool ideas.

Car Computer with Heads Up Display

The first one in the list, a car-based computer with a heads up display, is probably going to be an extremely profitable area. I agree with them on this. I’d love to have a proper computer system in my car. Navigation has been hugely successful, despite being deeply flawed in its current incarnations. Everybody loves MP3 players and cell phones. Why not bundle them all up into a cool car computer? Great idea, indeed.

So what’s the problem? It’s already underway, and you won’t get there in time. The players already moving in this space have been there long enough to have a lot of relationships with car dealers in place, but are small enough to be reasonably nimble. Of course, if you have the team handy (I doubt you would need more than three or four to do the technical side of this, though, so I suspect the 20 number suggested is way too high, if your people are smart), and can get rolling immediately, you might stand a chance. If you can get big enough seed capital to build your prototypes.

Another problem with this suggestion, possibly the biggest one for folks who might have access to the team and the inclination to work on this problem, is the offered investment: $5 million for a deeply qualified 20-person team to deliver a prototype and a plan for pitching a commercial version to automakers within three years. Wow. $5 whole million dollars for 20 deeply qualified people over three years? I’m guessing he’s planning a trip to Bangladesh soon, or he doesn’t want to take a very large stake in this business (which makes me question how much he really believes in this idea). $5m would cover a shoestring team of 4 nerds, a part-time lawyer to handle the patents/copyrights/trademarks, a business manager, and a sales person pinched from Garmin or AC Delco (they’re needing to lose some employees anyway, so you could probably get them cheap) to line up your car manufacturer deals, plus all of the prototypes. It’s definitely not covering a 20 person team.

Mobile Health Monitoring

This probably has huge potential. I think it’s even coming within reach of small entrepreneurs within the next couple of years. Actually, this one is probably an idea worth pursuing. It isn’t Web 2.0. It isn’t cool. It won’t involve much Ruby On Rails (though your website can use it, if you want). In fact, it’ll involve C or assembly or that abominable embedded BASIC, and a lot of dealing with stupid and archaic systems (medical technology moves at a speed only attainable when a failure may result in someone’s death…i.e. really, really slowly). The boxes you’re building and integrating with will be shiny on the outside, but you’ll hate the crap that’s going on inside. You’ll probably get rich doing it though, so you won’t have to do it for more than a few years. And, hell, you just might help save someone’s life.
I stand corrected. This VC is almost certainly on the right track.

Super Batteries and/or Capacitors

This one is a no-brainer. Just about everything new that we do over the next 50 years is going to require good portable power.

You shouldn’t work on it because you aren’t the guys who came up with idea for capacitors with nano-fur, nor do you have the expertise. This is deep magic. At least, I’m not gonna try to touch it.

But it is a good idea. Not really interesting for someone to say so, though.

The Bad

When I say “bad”, I mean, merely, that the idea seems stupid to someone who has never made millions investing in tech companies. Everyone of them may very well go on to be the next Google for all I know.

Cell Phone Spam

This one clearly has a lot of demand from VCs, as it is the only idea that got two nods in the article (I guess portable power got two, as well, though one wanted capacitors and the other wanted LiIon). Basically, there is a desire from marketers to be able to call you up and spew ads at you any time they like. The buyers for the service are definitely there. I’m certain that if an ad service provider could convince a reasonable number of people to allow ads to be phoned in, the service would sell, and for a lot of money (to start with).

But, who in their right mind agrees to have ads follow them everywhere they go? There is, however, a way to turn this problem on its head and offer a service that people do want and occasionally throw in some ads. Y Combinator has funded Loopt, which seems like a potential service that ads could be injected into. I’m not entirely sure I would even want the “service” that Loopt is offering, but I’m a bit of an asshole who’s not entirely sure he likes people all that much, so I suspect I’m just missing the very real appeal of such a service. Maybe once they support T-Mobile and I get Loopt in and find loads of cool ways to meet up with my two friends, I’ll change my tune.
Offering ads as a service all by itself is doomed to failure, though once services like Loopt become commonplace, the need for ad networks that have small screen capabilities will grow rapidly. I reckon they can throw away the first prototype and re-use some of the code to repurpose it as an ad network, and come out alright. But they’ll waste a lot of money and time getting there. And the people who were working on the small-screen ad network to start with will probably already be the winners.

Web Search for Mobile Phones

Again, mobile phones are rightly seen as the next big market. A great convergence will occur, and the PC shall die a slow and agonizing death (OK, that part is probably over-reaching a bit). I reckon it’s true that billions are going to be made on mobile services, and I understand the desire of VCs to be there when it happens. I just think they’re all looking in the wrong direction.

The problem with this one is that web search is a gigantic problem. The actual presentation to the user is nearly trivial, in comparison (insert caveats here). With the biggest tech companies in the world battling it out, no mere $2 million startup is going to be able to solve this problem faster or better than Google, Yahoo, and Microsoft.

So to be a success with such a startup, you’d have to make use of one of the big search engines. Google, preferably. With that as a given, you now have as your primary business goal getting an iron-clad long-term contract signed with Google that allows you to use their results in your products. The API is there, so the technical side is easy. But if the market is really big (which it is), Google is going to want a stake in your profits when signing this deal or they’ll want to be able to inject the ads so they’re taking all of the profits from the actual searches. At this point, your only income is from the carriers that signup to carry your service. Maybe this can be profitable, I don’t know. I suspect they’d rather pay no one, and let Google solve the problem for free.

One way to turn this on its head into an idea that might actually work is to work on the small-screen interface problem in a generic way. It still hasn’t been solved, though there are a lot of people ahead of you in the race. The Palm interface isn’t bad, my Sidekick is pretty easy to use and reasonably quick, but both of those have access to a lot more input capability than a normal cell phone. So, if there is a solution to the “doing useful work with a numeric pad and a 240-pixel-wide 2-inch screen” problem, and you find it, you’re probably going to make some money. You’ll be in the patenting and licensing business, however, and not dealing directly with consumers, which is an area with wholly different skills than making technology products for end-users. That’s OK, of course, just not where I’m interested in going.

A New Database Company

Hmm…Really? A new database company? This new database…should it be: Lightweight? Cheap as free? Proven? Definitely!

I’ll concur that there’s plenty of room at the bottom for nimble companies to eat Oracle’s lunch. So, maybe this one isn’t such a bad idea after all. Everybody needs a database. But I’m doubtful of the ability of any small company to compete with IBM and Oracle for the big deployments and the Open Source options for the small to mid-sized deployments. I mean, I never stop to think, “Hmm, should I buy a database?” I always just install PostgreSQL for big jobs or SQLite for embedded jobs, and never think another thing about it. I guess there are customers out there who don’t think that way, but they probably just install SQL Server for big jobs and the embeddable SQL Server for smaller jobs or use Access when they don’t know better. I understand MySQL is also pretty popular.

A Make Your Own Video Kiosk for the Web (or “A Matchmaker for Mashups”)

This one is just sad on so many levels.

I’ll grant that there is a lot of content out there, and the studios would love to monetize it.

I’ll grant that people want to be able to mix up existing content with their own. Twenty minutes at YouTube reveals that people want to dance, play, sing along, make goofy faces, act out scenes, and pretty much live their (made up) lives on camera with a soundtrack of their favorite music and firmly immersed in popular culture.

So, there’s definitely demand for access to that precious content. But injecting video of myself into a scene in Glengarry Glenross? I don’t know anyone that wants to do that. Sure, there’s a small contingent of people that find it amusing to make a record of themselves singing over Celine Dion or something, at the local amusement park, once. Same concept here. Nobody is making millions off of this idea.

In fact, I’d suggest that if the studios figure out how to charge these folks for making ads for the studios products, they’ll move along to something else. It would suddenly become a job, and it wouldn’t be fun anymore, and they’d go do something else. Then YouTube (and the other fee-based services that the studios would like to replace it with) would have entirely become the ad-laden, boring, pointless, waste of bits that it has already started to become.
In short, it’s just a bad idea with nowhere to go. Though a web-based basic video editor might be cool, nobody is gonna get rich off of it.

Anyway, interesting read, for a look into what VCs are thinking right now. But I’m not planning to work on any of those problems today (I’ve got my own problem and it’s interesting and proving pretty successful), but I’m always happy to learn a bit more about the way VCs think and what their up to. They’re generally pretty damned smart, and they’ve got more money than I do, so they must know a few things I haven’t learned yet.

In Paul Graham’s latest essay, A Student’s Guide to Startups, he says the following:

Your final advantage, ignorance, may not sound very useful. I deliberately used a controversial word for it; you might equally call it innocence. But it seems to be a powerful force. My Y Combinator co-founder Jessica Livingston is just about to publish a book of interviews with startup founders, and I noticed a remarkable pattern in them. One after another said that if they’d known how hard it would be, they would have been too intimidated to start.

Ignorance can be useful when it’s a counterweight to other forms of stupidity. It’s useful in starting startups because you’re capable of more than you realize. Starting startups is harder than you expect, but you’re also capable of more than you expect, so they balance out.

I guess this might be a legitimate rule of thumb, but it certainly doesn’t apply to everyone. Many successful startups are started by people who’ve previously started companies (some successful, some failed, and some just getting by like my first). Folks like me know exactly what we’re getting ourselves into, and we do it anyway. I’m guessing there are people for whom entrepreneurship is the only work that is truly satisfying. Of course, I’m also too old to start another startup, by Paul’s reckoning.

Last year I closed down a small technology business, Swell Technology, that I had operated for nearly seven years. The business was profitable, it had no debt, and after so many years, the customer base was as large as it had ever been and still growing from very positive word of mouth. It was privately held, and I was the sole owner. It had several proprietary and Open Source projects under its belt, making me and Swell the de facto source of expertise on all things web caching in the Open Source world in America. I had my pick of small consulting jobs paying $800-$1000 per day on-site, as long as I didn’t mind travelling. So, why did I shut the darned thing down?

It just wasn’t fun anymore.

In fact, it hadn’t been fun in years, and it got less pleasant every day. So here’s an attempt to cover all of the reasons, small and large, that it wasn’t fun.

The Hardware Business Sucks

Swell Technology’s primary business was selling web proxy caching appliances (i.e. prebuilt, preconfigured, supported, easy to use servers) based on Linux, Squid, Webmin and a number of custom packages.
Being in the hardware business is just a crappy place to be. Dell sells systems to end users at the same price Swell could buy them from distributors, leaving us scrambling to offer huge additional value to make folks feel good about spending two or three times Dell prices for equal hardware. Our direct competitors (BlueCoat and NetApp), of course, charged five or ten times the Dell prices…but I just couldn’t bring myself to do that.

Our customers were almost universally happy, and they actually seemed to get happier the more we charged, but I was never able to bring myself to charge enough. And so, we never made money on the individual device sales. We generally managed to lose money on every box we sold. Volume sales were much more profitable, due to much lower per-unit support costs, but without a high pressure sales force to match BlueCoat and NetApp, we just weren’t in the running for the large sales.

In the end, in an effort to work fewer hours and bring in more help, I raised prices 20-40% across the product line. Sales volume increased slightly and the short term profits looked higher, but the support burden went through the roof. I had crossed the imaginary line in pricing that separates “enterprise” and “technical” customers, and the “enterprise” customers demand a lot of attention. I was working harder than ever.

The final issue with hardware is that it changes constantly, and in the case of OEM rackmount server hardware, it was constantly changing for the worse. For the first year or so, we shipped out crappy looking beige rackmount boxes with a simple plastic logo sticker to indicate they were Swell products. They were extremely reliable (at least a few of those original units are still in production use in the field today), and not too noisy, but they weren’t pretty. After that first year, I met the folks from Area Electronics at ISPCon, and they were just introducing Gigabyte OEM products to the US market. Those boxes were gorgeous. Looked better than the Dell stuff, had better components, and the price was right. Area would also do the hardware build for us at almost no cost, so we didn’t have to do it in-house anymore. Cool.

Then things started going downhill. Gigabyte had a couple of gaps in their line, requiring us to choose other options for the low end and the mid-range systems. Luckily, Quanta was in the mid-range, and they actually make some of Dell’s (and HP/Compaq, and others) systems…so the quality and “wow” factor was still good, though not as good as Gigabyte. Then Gigabyte left the OEM market entirely. So we switched over entirely to Quanta servers with MSI for the low-end box. And then Area stopped carrying Quanta, and I was unable to locate another US distributor, so we had to switch to all MSI, which were noisy, ugly, and simply cheap looking (with the exception of the low-end 9211, which was pretty and cool looking, but still noisy as hell).

Anyway, hardware sucks. Don’t do it. I never will again. I’ll let Dell figure out how to make it profitable, and I’ll focus on making great software. The pain of offering hardware was the straw the broke the camel’s back for my first startup. But it wasn’t the only problem.
A Telephone Ringing Now Makes My Stomach Hurt

On products that cost $2000-$12000, even if they aren’t actually profitable at that price, people expect to be able to call someone when something goes wrong. So, Swell offered 24/7 telephone support. First via a pager, that I carried with me everywhere, and then via a cell phone. The plan in the beginning was to grow enough to hire additional support staff, so I’d get a day off now and then…but that never happened. I eventually hired a bookkeeper, and I hired developers now and then, but in the end, I couldn’t afford to hire another me (or even a younger, less experienced version of me). The cost of providing support remained whatever my hourly rate for consulting and software development work was, or what I would make spending time selling more boxes.

So, every time someone called, it cost me between $95 and $500, because my hourly rate was $95-$125/hour and telephone support is extremely time consuming…something that would have taken ten minutes via email, takes an hour or more via telephone. I would regularly spend hours each day on the phone with a single customer, because of a misconfiguration on their router or a problem with their website. Not our problem, but I’m too nice to say, “Nothing I can do.”, when I knew exactly what the problem was and how to fix it.

Now, I hate telephones more than any other device on earth. I will never offer telephone support again, and I will never work in any position that requires me to answer a telephone. It’s a minor mental illness caused by a poor business decision. A good issue tracker makes telephone support seem absolutely barbaric, in contrast. Issues get resolved faster, they never get lost or missed, and I don’t have to interrupt dinner with my girlfriend to answer. We still have customers that ask for a phone number, but we’ve never lost a sale because I’ve refused to give them one (and I wouldn’t regret losing the sale if telephone is the primary mode by which the customer intends to contact me in the future…with software that starts at $69, I’m just not going to talk to anyone on the phone for any reason).
Open Source Users Can Be Kinda Bitchy

For the last three years that Swell was around, I was bored. My products were roughly complete. They looked good, they were predominantly free of bugs, and I finally had someone doing the actual build-install-ship process, so the tedious stuff was being handled too. So, I started branching out. We started work on a content filtering system, called PenguinFeet, with a Creative Commons licensed set of blacklists and a proprietary set of management tools (that ran on my server), and Open Source Firefox toolbar for submissions and blacklist management, and I hired four part time work-from-home employees (the Blacklist Wranglers) to validate our bot generated lists and find new sites that the bots missed and a part-time manager for those Wranglers. I paid for development of a gzip compression feature for Squid that users had been asking for for years. I hired Jamie Cameron (whom I’d worked with many, many times in the past) to write a virtual host administration tool (also known as a control panel) to integrate into Webmin, which we released under the GPL.
In response to the free PenguinFeet project, I received predominantly animosity from the Squid community (not the developers, of course, whom I’ve always counted among my favorite people). Some considered it censorship that Open Source developers shouldn’t be taking part in. Some just felt like it should have been more free, in the sense that my management tools should also be free, and that I shouldn’t be selling a product based on lists generated by the community (despite the fact that 99% of all entries in the database were from my bots and my paid Wranglers, and the lists were all under a Creative Commons license). And some just liked to bitch and complain because I wasn’t doing it the way they would have done it. Anyway, I never made a dime on PenguinFeet, and spent about $35 grand over 9 months, not to mention my own time spent on the project.

In response to Squid gzip, the animosity was nearly universal (again, not from the developers, who were excited about the project from the start). The reason, of course, was that I requested economic help from the users with completing the work before releasing the code. I’d invested about $10 grand and was out of development funds for the year, and another $4000 was needed to wrap it up, plus some money to develop Squid 3.0 to the point of stability. It was actually suggested by one user, with a straight face, that a collection be taken up from Squid users, to hire someone else to start from scratch and add compression to Squid. I’m not sure exactly what they expected to accomplish with this plan other than revenge for having the gaul to request a few donations to help finish up the work, but the plan was squashed quickly by Henrik (the real hero on the Squid project for the past four or five years, and the fellow I now highly recommend whenever anyone comes to me for Squid development or support work). Anyway, long story short, there are a few Open Source software users who are offensively ingrateful. Those few users helped convince me that an entirely Open Source-based company, which Swell was, just isn’t worth the heartache.
These are but two instances out of dozens in which a user (never a developer) of one of the Open Source projects Swell included in our products, and always contributed to, decided that because I was attempting to make a profit on Open Source software, or even just avoid incurring additional expenses when an Open Source project went over my budget, scorn was in order.

For what it’s worth, Squid gzip has been imported into the Squid CVS tree, despite never getting the finishing touches I was attempting to raise funds for. Hopefully, in a year or two, when Squid 3.0 stabilizes, gzip support will also get some attention and inline compression will be a reality for Open Source users (it’s been available in numerous, very expensive, proprietary products for several years). The PenguinFeet database is still live at http://www.penguinfeet.org and I’ll probably come back to it when I have some free time, though the Blacklist Wranglers have been off the job for a year and I’ll have to come up with a better way to handle the “the internet is HUGE” problem before calling it a success.
My new startup is still pretty fond of Open Source software, and my co-founder and I spend at least as much time on Open Source projects as on our commercial software, but the single product we sell is not Open Source. I made a sincere and persistent attempt to make a decent living with entirely Open Source-based products and failed, so I’m trying a slightly different path this time.

Note: I’m not complaining about not making any money on my Open Source development projects. I didn’t expect to make money, I was working on them (or funding the work on them, since I was busy running a company and wasn’t doing any development other than that which was core to my business) because they were needs I saw in the community and I had some resources that I could throw into getting those needs filled. My complaint is with the attitude of some of the users. Seven years of hard work, and frequent funding, on behalf of Open Source projects deserves at least a modicum of civility from the users of those projects.

It was also partly my own fault for not realizing the extremely short memory of crowds. The users who complained were new to the community, and didn’t bother to search through the mailing lists to see that I had been a contributing member of the community since before Swell existed. These users just assumed I was as new as they were and had only come to cash in on this new-fangled Open Source thing (perhaps the thought of doing so themselves had crossed their mind recently).

The Problem Domain Was No Longer Interesting

My enthusiasm for proxy caching simply faded. There really isn’t a lot to say about this one…the independent ISPs that I most enjoyed working for and with have gone the way of the buffalo in the US. The telcos killed them by repeatedly flaunting their power and fixing prices for access to the last mile. I’m opposed to regulation, but the so-called “de-regulation” of the telcos wasn’t. They still maintain their state protected monopoly over the last mile.
Also, I suspect I am not alone among entrepreneurs in having a roving imagination. I don’t like to stay on a single project too long, and seven years proved too long.

And, that’s all I have to say about that for now. More to come in part 2.